Investing in Macquarie Group (ASX:MQG) five years ago would have delivered you an 82% gain, showcasing the growth potential of the company. Over the past five years, Macquarie Group has achieved compound earnings per share (EPS) growth of 7.9% per year, indicating consistent performance. This aligns with the aim of active stock picking, which is to find companies that provide superior returns compared to the market average. In fact, long-term shareholders of Macquarie Group have enjoyed a 51% increase in share price over the last half decade, outperforming the market return of around 23%.
However, recent returns have not been as impressive, with the stock only returning 6.3% in the last year, including dividends. To assess the underlying fundamentals of the company, it is important to consider the longer-term performance in relation to shareholder returns. As Benjamin Graham aptly stated, "Over the short term the market is a voting machine, but over the long term it's a weighing machine." One way to gauge the market perception of a company is by comparing the change in EPS with the share price movement.
Macquarie Group's EPS growth of 7.9% per year during the five years of share price growth is in line with the 9% average annual increase in share price. This suggests that the market sentiment towards the company has remained relatively stable over that time. Insiders purchasing significant amounts of shares in the last year is also seen as a positive sign. However, future earnings will play a crucial role in determining whether current shareholders can continue to make money.
When analyzing investment returns, it is essential to differentiate between total shareholder return (TSR) and share price return. TSR takes into account the value of any spin-offs or discounted capital raisings, along with dividends assuming they are reinvested. Macquarie Group's TSR for the last five years was an impressive 82%, surpassing the previously mentioned share price return. Dividend payments largely contribute to this difference.
Looking at a different perspective, Macquarie Group shareholders have experienced a 6.3% return for the year, including dividends. However, this return falls short of the market's performance. Over a five-year period, the returns improve significantly, averaging at 13% per year. This may indicate that the current breather in the share price is due to the company executing its growth strategy.
While market conditions can influence share prices, there are other important factors to consider. It is worth noting that there is one warning sign for Macquarie Group that investors should be aware of. As with any investment, thorough research and consideration of all factors are crucial to making informed decisions.
Analyst comment
Overall, the news about investing in Macquarie Group five years ago is positive. The company achieved compound earnings per share growth of 7.9% per year, which closely aligns with the average annual increase in share price. This suggests that market sentiment around the company has remained relatively stable. Insiders have also made significant purchases in the last year, indicating confidence in the company’s future earnings. The total shareholder return for Macquarie Group over the past five years was 82%, driven largely by dividend payments. However, recent returns have been less impressive, with the stock returning just 6.3% in the last year. The market may be waiting to see execution on the company’s growth strategy.
